Obama’s State Of The Union Speech Will Aim To Influence 2016 Debate

President Obama must figure he has nothing to lose Tuesday night during his annual State of the Union address: so naturally he will take credit for the recent upward trajectory of the U.S. economy, and why not propose higher taxes on the wealthiest Americans and new fees on the biggest Wall Street banks. (Bloomberg) — Barack Obama will focus on the gap between wealthy Americans and middle- and lower-income households Tuesday night in Washington when he lays out his plans for what the White House is calling the “fourth quarter” of his presidency.The president is expected to finally take a big stand against wealth inequality tonight, but he still won’t touch the tax loophole that benefits some of his biggest donors. Eight years after launching his campaign, and six years after being inaugurated, President Obama is finally living up to the greatest fears of his detractors in a significant way.

The biggest proposals that he will present to Congress and the country will be non-starters with the newly-minted Republican Congress whose support Obama will need to pass legislation. Tonight, he’s expected to propose a plan to tax the rich and banks more, and distribute the proceeds to those on the lower rungs of the income ladder through tax credits. But the debate over middle-class economics is looking critical for the coming campaign. “Inequality_and especially the growing opportunity gap_have become the top litmus test of seriousness for 2016,” said Robert Putnam, a Harvard political scientist who has discussed inequality issues with the president and his advisers. “The entry ticket for the presidential sweepstakes is that you have a policy — some policy — for dealing with this issue.” Indeed, potential Republican candidates Jeb Bush and Mitt Romney have been talking openly about income inequality and the need to give lower-earning Americans more opportunities. Two bright spots include the recent surge in U.S. labor markets and the dramatic decline in the price of oil, both of which have boosted consumer confidence and are expected to contribute to maintaining economic momentum into 2015.

Bush, told The Daily Beast. “There are so many other proposals [Obama] could have started with instead—what a wasted opportunity to reach across the aisle and secure a better legacy for himself.” For the president, there aren’t many options left. With the December jobs report showing another 252,000 new jobs created last month and the unemployment rate slipping to 5.6%, the lowest level in over six years, the U.S. labor market ended 2014 on a roll. From expanded health coverage to broadening a tax credit for workers, the president also wants to put more money in the pockets of lower-income earners.

Obama will undoubtedly tout these numbers during his speech Tuesday night and suggest that his policies helped stabilize the economy following the 2008 financial crisis. In the run-up to Tuesday night’s address, he has been unveiling initiatives including one for paid family leave and another to make community college free.

Republicans, who control both chambers of Congress, lambasted the proposals with Representative Jason Chaffetz of Utah calling the tax plan a “non-starter” Jan. 18 on CNN. Democrats—especially the core group of senators from coastal states like New Jersey, Connecticut, New York, California, and Massachusetts—tend to represent remarkably wealthy constituencies.

But what will probably get less attention in his speech is the fact that these strong job creation numbers have yet to translate into higher wages for most Americans, a point not lost on the Federal Reserve as central bankers wait for higher wages to push inflation to the Fed’s target rate of 2%. The Obama administration expected resistance and the president made clear he’s not backing away from the challenge even though just two years remain in his term. “Anybody who is a sports fan knows you have to play the whole game,” he said in the video. One of the reasons cited for the long-standing pressure on wages has been the poor quality of many of the jobs created since the recovery began in 2010. A year after the American publication of Thomas Piketty’s Capital, the runaway bestseller about the ways in which the world’s wealthy have become ever more wealthy over the decades, the leader of the party of FDR and Lyndon Johnson has finally picked up a pitchfork. Millions of Americans have returned to the workforce since the Great Recession ended, but many of those jobs have been in low-paying service positions, or at temporary or part-time jobs.

The president’s proposal would increase the capital gains rate on couples making more than $500,000 annually to 28 percent, require estates to pay capital gains taxes on securities at the time they’re inherited, and slap a fee on the roughly 100 U.S. financial firms with assets of more than $50 billion. While workers at the bottom have been aided by government transfer payments, the picture is grim: Transfers boosted after-tax 2011 income for the bottom fifth from $15,500 — based solely on earnings from work — to $24,100, according to a November 2014 Congressional Budget Office analysis that uses different data than the Census report.

Bush, said that Clinton’s second-to-last SOTU focused on big issues where parties could find common ground: the federal budget surplus, welfare reform—even solving the Y2K problem. While most policies were in effect when Obama entered office, his economic-stimulus plan — which included initiatives such as an expansion of a refundable tax credit — helped bolster some household incomes. Transfer payments don’t have the same quality-of-life value as earning money from work, said Mark Calabria, director of financial-regulation studies at the Cato Institute in Washington and a former Republican Senate aide. People in the private equity and hedge fund world get paid to manage the money of other people and institutions—typically a flat fee (about 2 percent) on the amount of money they manage and place at risk, plus a chunk of the profits those investments return (typically about 20 percent.) Take $100 million from investors, invest it in stocks, apply some leverage, and rack up a 30 percent return in a good year, or $30 million in total profits. A spokesman for House Speaker John Boehner, R-Ohio, called the White House’s tax proposal “the same old top-down approach we’ve come to expect from President Obama that hasn’t worked.” And Florida Sen.

These proposals will certainly go over well with Obama’s liberal Democratic base and will provide a starting point and rallying cry for Democratic candidates heading into the 2016 elections, but they’re also almost certainly dead-on-arrival in the new Republican-controlled Congress. In the context of the kind of divided government we have today, big proposals requiring Congressional cooperation may ring hollow,” Fitzpatrick said. “But it doesn’t mean the speech itself is devoid of meaning or significance.” The IRS doesn’t regard those payments as wage income—as, say, a mutual fund manager might charge for managing money, or as a lawyer or accountant might charge for providing advice. A single mom who switches her fast-food restaurant shift “can lose her job for it.” The president has proposed free community college education for millions of students, at a cost of $60 billion over 10 years.

Obama for this year’s speech are Alan Gross, who was released from a Cuban prison last month as part of Obama’s decision to normalize relations with the communist island nation; Chelsey Davis, a student from Tennessee who plans to graduate community college in May; and Dr. For instance, an estimated 24 million working couples would receive a $500 “second earner” tax credit targeting families in which both spouses work.

The additional revenues would also allow the federal government to expand the child tax credit to up to $3,000 per child under the age of five, a plan that would benefit an estimated five million families now paying for child care. Thanks to the carried interest rule, a private equity manager pays taxes of only $2.34 million on a $10 million performance fee; were it taxed as ordinary income, he’d pay $3.96 million in taxes on that same sum. CAP, founded by Obama counselor and expected Clinton campaign chairman John Podesta, released proposals last week that it says will promote prosperity for all. Capital gains tend to be taxed more lightly than ordinary income because the government wants to provide incentives for people to put investment capital at risk.

This administration isn’t new to ambitious plans to benefit the poor: The president’s health law is intended to offer low-income Americans stability through insurance. In classifying carried interest as capital gains, the tax code, which already privileges income earned by capital over income earned by labor, privileges the type of labor conducted by a very small fraction of the wealthiest over the labor of the rest of us.

Obama would also consolidate several education tax breaks into a single tax credit worth up to $2,500, and is proposing to end taxation of some student loan debt forgiven under income-based repayment plans. Earlier this month, he announced that the Federal Housing Administration would cut its mortgage-insurance premiums by about 37 percent, enough to save most borrowers $900 a year on their loan payments. Even in 2009, when the Democratic Party, flush from victory and sitting on solid majorities in both houses of Congress, didn’t attempt to eliminate the loophole.

Wage growth remains tepid, and falling gas prices, a boon to the middle class, have done little to help low-income Americans, who often don’t drive. She has gotten both a bachelor’s and a master’s degree since being laid off from her full-time position in 2009 yet only landed a part-time, $20,000 job as a community organizer in Charlotte, North Carolina. Under the plan, about 7.7 million workers would qualify for a larger credit and 5.8 million more would become newly eligible, according to an administration analysis. Obama also called on Congress to raise the minimum wage to $10.10 from $7.25, which would benefit 28 million Americans, according to the Department of Labor.